“Marketplace Fairness Act” could force Amazon to collect sales tax

Online retailers like Amazon have long objected to collecting most sales taxes …

Ten Senators, led by Dick Durbin (D-IL), Mike Enzi (R-WY), and Lamar Alexander (R-TN), this morning introduced a new Internet sales tax bill called the "Marketplace Fairness Act." The bill gives states broad authority to require that online sellers like Amazon collect and remit state sales taxes so that online and offline retailers all operate under the same rules.

Companies have long been required to collect sales tax in states where they have a physical presence. Back in 1992, the Supreme Court confirmed that retailers don't have to collect sales tax when shipping to other states, as it would be too complicated (but it did invite Congress to a pass a law setting new rules in the future).

Buyers have generally owed such taxes anyway; they're called "use taxes"—and almost no one pays them. That gives online retailers a price advantage over local sellers.

The new bill doesn't create any new taxes, but it does give states the right to demand that online retailers collect sales tax instead of relying on citizens to pay a use tax. The bill follows a similar Senate bill introduced earlier this year, but it exempts small business with less than $500,000 in sales from collecting the tax, in part due to vociferous objections from eBay regarding its many small sellers. (The House is considering a similar measure.)

The move predictably pleased brick-and-mortar retailers. "A true free market is devoid of government preferences and special treatment," said Katherine Lugar, Executive Vice President for Public Affairs at the Retail Industry Leaders Association, in a statement. "The Marketplace Fairness Act will get government out of the way, restore the free market, and close the loophole that has given an unfair advantage to online retailers like Amazon.com for over a decade."

But Internet companies aren't as excited about it; indeed, Amazon has launched multiplepublicbattles against states that have tried to make the company collect sales tax. The Computer and Communications Industry Association (CCIA), a DC trade group which counts eBay, Google, Microsoft, and Yahoo among its members, blasted the bill today.

“This bill would unfairly place a compliance burden on online retailers for daring to utilize a new legitimate business model that does not fit well with a sales tax system based on physical location," said CEO Ed Black. "Businesses should not be penalized for utilizing technology and innovation."

But Senators Enzi and Alexander, writing today in National Review, said that "technology and innovation" was behind their support of the new bill. In the 1990s, "technology for businesses to compute and collect taxes was not nearly as advanced as it is today," they argue, implying that software has made the entire collections process far less complicated today than opponents insist it is.

Update: eBay still doesn't like the bill. “This is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors," said eBay VP Tod Cohen in a statement sent to Ars. "It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity.”

Update 2: Thanks to the final bill text now available (and linked above), it's clear that sales tax can only be required if states first simplify their tax code for out-of-state companies. Minimum requirements for this are spelled out in the bill, but they require things like having a single mailing address for all tax payments to the state and the possibility of a paying single "blended" rate rather than calculating every single local sales tax rate separately.

You can tell they have never actually tried to implenet various tax codes.

My company has six phyiscal locations in NY State. In 6 seperate counties. Just for us we have 17 different tax codes each at a different rate that we must collect dales taxes on depending location of sale.

In the USA there are 3143 counties for a minimum of 3193 different tax codes, regulations, and taxable item lists that need to be listed for every transaction as if you are off by so much as a .5% you face massive fines.

They also never say which tax codes have to get paid and to whom, the buyer, shipper, or reciever? Or do you have to pay tax to all 6 potentional tax jurisdictions?

From what I understand Amazon is far more concerned with making sure that they aren't the only online retailer collecting sales taxes, than they are with not collecting sales taxes at all. That is, they're worried more about a situation where they (for example) have to collect sales taxes in California while New Egg does not, than they are about a situation where everyone is collecting sales taxes in California.

They also want the tax collection procedures to be uniform (or as close as possible) around the country. As ESuzaku mentions, what happens if Texas claims that they get to tax everything that their citizens buy, but not what they sell, but California taxes everything they sell, but not what they buy. Does Amazon then have to collect taxes for both state? Is the buyer then double taxed?

I would think that a comprehensive federal level law would have the necessary power to solve these issues. I don't know that the Marketplace Fairness Act does this, but I would hope it is a step in the right direction to address the problem.

"A true free market is devoid of government preferences and special treatment," said Katherine Lugar, Executive Vice President for Public Affairs at the Retail Industry Leaders Association, in a statement. "The Marketplace Fairness Act will get government out of the way, restore the free market, and close the loophole that has given an unfair advantage to online retailers like Amazon.com for over a decade."

That would be true if the brick-and-mortar stores also had to charge taxes based on the customer's residence. They would also loose that advantage of just being conveniently across a state or county line.

So, which state gets to charge tax? The state hosting the business, or the state the buyer is in?

I wouldn't be shocked at all if both states get to charge a tax. Government at all levels is so rife with waste, corruption, corporate welfare, and 100 other dirty things. Filling the bottomless money pit requires more and more and more. Besides, this will create jobs or something, right?!

Shipping costs usually negate the tax savings....so why is the brick and mortars get "special treatment"?

Not having to maintain a physical presence in a location that gets exposure and foot traffic is why online retailers are eating into brick and mortars to begin with and why so many are popping up. Plus why online advertising is such a huge thing, location doesn't help sell your product (unless you have a really good URL).

I don't buy the compliance issue either, calculating sales tax is easy to do and it's not like the amounts of sales tax are hidden. Heck, I could figure out all the sales taxes for Amazon and any other large retailer if they want and maintain it in an easy to access system. I'll charge them $20k a pop, that's nothing compared to their usual compliance costs. Heck, forbes paid a company to figure it out just to write that article up there. But at the same time, SCOTUS said the problem was that it was too complicated. This isn't a solution to that problem, this is just trying to force it through anyway. A national sales tax distributed to the states would work much better, but it seems unlikely to happen.

I have a reason, I am sick of taxes so this is the only way I get to avoid some. We pay close to 60% of our income in one way or another (sales taxes, restaurant tax, fed tax, state tax, local tax, capital gain tax, inheritance tax, liquor tax) to the US government(s). Glad there is at least one way to avoid this stuff... I buy everything online for this reason.

ummm, what? Isn't this the exact opposite, since the government is explicitly trying to intervene on brick and mortar retailer's interests?

Or by get government out of the way do they mean, "side-step a pesky SCOTUS ruling that we don't like."

"restore the free market"

The market works by retailers enticing would-be customers by offering better products or services. Whining to the government to get laws passed to explicitly ding your competitors isn't restoring the free market at all.

You can tell they have never actually tried to implenet various tax codes.

My company has six phyiscal locations in NY State. In 6 seperate counties. Just for us we have 17 different tax codes each at a different rate that we must collect dales taxes on depending location of sale.

In the USA there are 3143 counties for a minimum of 3193 different tax codes, regulations, and taxable item lists that need to be listed for every transaction as if you are off by so much as a .5% you face massive fines.

They also never say which tax codes have to get paid and to whom, the buyer, shipper, or reciever? Or do you have to pay tax to all 6 potentional tax jurisdictions?

Aside from the confusion of "where do we collect for" (which should be dictated by the buyer's address), this isn't all-that onerous anymore. There are online services that handle geographic tax code information, some of which can even do a per-transaction fee so retailers only pay when they have to collect taxes. I've implemented them before for companies that have physical presences and an online presence, and while it is a pain in the ass to set up once, after that the service stays up-to-date for you, and can even make sure each county is the proper payee in your ERP system.

While I do debate whether or not we should be taxing online stores across state lines, technical feasibility should not be an argument to implementing it. Not even for small businesses, which if they're going through eBay and the like, would be able to leverage the service I mentioned on a per-transaction basis.

Quote:

Or by get government out of the way do they mean, "side-step a pesky SCOTUS ruling that we don't like."

Uh, in this case, the SCOTUS specifically invited Congress to readdress the issue in the future.

The move predictably pleased brick-and-mortar retailers. "A true free market is devoid of government preferences and special treatment," said Katherine Lugar, Executive Vice President for Public Affairs at the Retail Industry Leaders Association, in a statement. "The Marketplace Fairness Act will get government out of the way, restore the free market, and close the loophole that has given an unfair advantage to online retailers like Amazon.com for over a decade."

In the USA there are 3143 counties for a minimum of 3193 different tax codes, regulations, and taxable item lists that need to be listed for every transaction as if you are off by so much as a .5% you face massive fines.

Except that it's much, much more complicated than that, because in addition to state and county tax, cities and special districts (school districts, utility districts, etc) can also have their own taxes and taxable item lists, and those lines don't line up nicely with each other. In a lot of areas you can get a different tax rate every couple of blocks because of how the different areas overlap, and the software available to try and divine the correct rate from an address is still nowhere close to 100% correct.

I prefer the current system because it increasingly discourages states from using sales taxes in the first place. We should not be encouraging this antiquated form of taxation.

In Tennessee, at least, we don't have a State income tax. Our sales tax is higher than many states to compensate. Given a choice between another convoluted income tax or a straight sales tax collected on items I purchase online, I think I prefer the latter.

Amazon.com just built at least two distribution centers in TN with possible plans to build more. So they now have a physical presence, but they negotiated an exemption on collecting sales tax in return for producing potentially thousands of jobs.

You can tell they have never actually tried to implenet various tax codes.

My company has six phyiscal locations in NY State. In 6 seperate counties. Just for us we have 17 different tax codes each at a different rate that we must collect dales taxes on depending location of sale.

In the USA there are 3143 counties for a minimum of 3193 different tax codes, regulations, and taxable item lists that need to be listed for every transaction as if you are off by so much as a .5% you face massive fines.

They also never say which tax codes have to get paid and to whom, the buyer, shipper, or reciever? Or do you have to pay tax to all 6 potentional tax jurisdictions?

My guess is that we will see 3rd party companies that specialize in this. Most accounting software already has tax tables for payroll. What would be so hard about using a similar system for collecting sales tax?

Edit: And for the record I come down pretty strongly on people need to pay sales tax. As it stands I end up subsidizing the free loaders when I support local businesses in my community and that is wrong.

So this bill is intended to make sure that the book you buy at a local bookstore has the same tax as the book you buy on Amazon.com. No new taxes - making sure you're obeying the law and paying the tax you were supposed to all along (but conveniently gave your local government the finger on).

Note also that the federal government derives nothing from this - this is entirely about your local town, state, etc. Feel free to petition them to lower their taxes - you can actually have an impact locally.

Seriously people - this is about as straightforward as it gets. Take your "GUBMENT-IS-EVULZ" rants elsewhere, and take some real action in your local community.

Want fair? Then either all states collect sales tax, or none do. Want states rights? Then this is not a matter for the federal government to address.

That leaves us with either the status quo, where states govern this kind of thing and sellers are free to do business in and with states of their choice, OR we take some drastic measures at the federal level. I don't see the latter happening.

So what is this about, really? State governments getting a piece of the Amazon pie. Cut and dried. I call BS.

I notice that consumers and taxpayers aren't being considered at all in this. Hmmm.

In the USA there are 3143 counties for a minimum of 3193 different tax codes, regulations, and taxable item lists that need to be listed for every transaction as if you are off by so much as a .5% you face massive fines.

Except that it's much, much more complicated than that, because in addition to state and county tax, cities and special districts (school districts, utility districts, etc) can also have their own taxes and taxable item lists, and those lines don't line up nicely with each other. In a lot of areas you can get a different tax rate every couple of blocks because of how the different areas overlap, and the software available to try and divine the correct rate from an address is still nowhere close to 100% correct.

I would point out that so far, Congress is only addressing State taxes, not county taxes and the like. As such, it's possible that they really only care about the big 50 (minus states that don't use sales tax), so this complexity won't be brought to bear.

That said, I do think they should make part of the law be that the government has to make a publicly accessible database (maybe managed by the Post Office?) of all tax regions and the addresses contained within, and indemnify any company against claims of misappropriating taxes if they use that database to validate how much sales tax to charge on a transaction.

Except that it's much, much more complicated than that, because in addition to state and county tax, cities and special districts (school districts, utility districts, etc) can also have their own taxes and taxable item lists, and those lines don't line up nicely with each other. In a lot of areas you can get a different tax rate every couple of blocks because of how the different areas overlap, and the software available to try and divine the correct rate from an address is still nowhere close to 100% correct.

Some would argue that this is a business opportunity for the market to address. You know, much in the way that Intuit makes a mint every year on TurboTax.

You can be that person to make the mint - or you can complain about how oh-so-hard it is and wring your hands while someone else does it.

Want fair? Then either all states collect sales tax, or none do. Want states rights? Then this is not a matter for the federal government to address.

That leaves us with either the status quo, where states govern this kind of thing and sellers are free to do business in and with states of their choice, OR we take some drastic measures at the federal level. I don't see the latter happening.

Huh? Taxes are decided on the state of the purchaser, not the seller. As such, your argument makes no sense. It isn't even a state's rights issue.

So what is this about, really? State governments getting a piece of the Amazon pie. Cut and dried. I call BS.

I notice that consumers and taxpayers aren't being considered at all in this. Hmmm.

This is about local communities raising revenue for street lights, police, firefighters, teachers, etc. by taxing commerce the same way they would if you went into a local store. The only people here that are not being considered are the deadbeats that try to game the system and pass those costs onto people that actually support their local communities.

As I am living in a state that does in fact hit me up for such sales tax (Massachusetts), it should be the state that the buyer is in.

Otherwise, the consumer could have to pay sales tax twice.

How it works in Massachusetts: On your annual return, Mass reminds you of use tax and offers a reasonably priced alternative to calculating use tax for the whole year.

I don't believe this would change that. You will still have smaller sellers which are not required to collect the tax, and larger sellers who do (many of them already collect it). If you are purchasing things online, where the tax is already being collected and remitted to your home state, then those would not be involved in the calculation of Sales and Use Tax due.

Many states, like my home state Florida, require that anyone filing a periodic return with the state remit the S&U tax (on taxable purchases where it was not collected).

If I'm purchasing something online, it's generally because the local brick-and-mortar retailers either don't stock it, or it's in some way a better option. Sometimes, I really do just prefer going to the store and buying whatever over having it shipped.

If we absolutely must, have the tax apply to whatever state the thing is being shipped to. Simplest method with the least amount of potential guesswork.

If we absolutely must, have the tax apply to whatever state the thing is being shipped to. Simplest method with the least amount of potential guesswork.

I agree. This may get tricky because what is taxable at a given rate in the seller's state may be non-taxable or taxable at a different rate at the destination. In some cases, the granularity is so fine that it goes down to the county or city. Someone will have to maintain a central database so that any seller can determine the tax based on destination and what it is.